American Opportunity Tax Credit

 

Tax time is approaching, and there is a favorable change to the Hope Tax Credit that many WWU students and their families may now receive. Effective for the 2009 and 2010 tax years, the Hope Tax Credit has been renamed the American Opportunity Tax Credit and the maximum credit is increased by $700 from $1,800 to $2,500 per year for up to the first four years of qualifying educational expenses.

Here are six important facts the IRS wants you to know about the new American Opportunity Tax Credit (For more information, visit the IRS website at: www.IRS.gov/Recovery )

1. This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course materials.
2. The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000 per student each year. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
3. The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
4. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
5. The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.
6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction, which ever is more beneficial for you. You are encouraged to contact your tax preparer or the IRS if you have questions about the American Opportunity Tax Credit , or other income tax filing issues.

Additional Resources:

• IRS website – Tax Benefits for Education: Information Center
• IRS website – Questions and Answers on the American Opportunity Tax Credit
• IRS Podcast – Education Tax Breaks